GBP/AUD Exchange Rate Turns Down as Investors Brace for BoE Decision
(Updated 16:50, 04/05/2022) The Pound Australian Dollar (GBP/AUD) exchange rate reversed its earlier gains late this morning and through the afternoon, with the Pound (GBP) trading in a mixed range ahead of the Bank of England (BoE)’s interest rate decision tomorrow.
Markets have been somewhat skittish as investors await this evening’s Federal Reserve announcement, with Sterling alternately benefitting from bearish USD trading while succumbing to pressure on global risk sentiment.
Meanwhile, the Australian Dollar (AUD) has continued to enjoy upside on account of today’s upbeat data. AUD traders also anticipate an increase in Australia’s trade surplus, to be announced tomorrow, buoying ‘Aussie’ sentiment and pressuring GBP/AUD.
Analysts at ING expect the Pound to face further headwinds tomorrow, potentially dragging the Pound Australian Dollar exchange rate even lower:
‘We expect [tomorrow’s Bank of England policy meeting] to defy hawkish expectations and add some pressure to the pound,’ said representatives.
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Pound Australian Dollar Exchange Rate Bounces as EU Optimism Boosts the Pound
The Pound Australian Dollar (GBP/AUD) exchange rate rebounded early in the European session as news from the Euro area supported the Pound (GBP) amidst steady trading conditions. European Commission President Ursula von der Leyen said early Wednesday that they will phase out the Russian supply of crude oil and refined products by the end of the year.
At the time of writing, GBP/AUD is trading at A$1.7575, slightly below today’s opening levels.
Pound (GBP) Finds Support despite Lack of Significant Data
The Pound is making small gains against its peers this morning as market sentiment is calm in the run up to the Federal Reserve’s interest rate decision later. Mixed trading stimuli cap gains somewhat, as Beijing struggles to contain its coronavirus outbreak and central bank policy divergence weighs upon Sterling.
Optimism in the Euro area may be going some way to counteract headwinds, however, as the President of the European Commission announced that they will phase out the Russian supply of crude oil; major Russian banks will also be excluded from the SWIFT system as part of the latest sanctions package.
The Federal Reserve is expected to hike interest rates by 50bps this afternoon and will unveil its plan for balance sheet reduction; meanwhile, dovish rhetoric from the Bank of England (BoE) last week led markets to downgrade expectations for the central bank’s rate hike trajectory.
In contrast to the Fed, the BoE is expected to raise interest by 25bps tomorrow: economists at Credit Suisse say the bank would need to deliver a clear hawkish outcome such as a 50bps rate hike to change the negativity surrounding the Pound.
‘With the May 5 UK local elections in focus, and the prospect of poor outcomes and perhaps a leadership challenge for Boris Johnson, it seems unlikely that GBP will present a clear case to buy any time soon,’ say analysts.
Australian Dollar (AUD) Buoyed by Upbeat PMI and Retail Data
The Australian Dollar (AUD) is enjoying upside against several peers this morning on positive PMI and retail data. April’s finalised services PMI printed at 56.1 – above last month’s 55.6 – while retail sales grew by 1.6% in March 2022 in contrast with the 0.5% forecast.
The S&P Global Australia Services PMI marked the third straight month in which business activity in the Australian service sector rose and at the fastest pace in two months. Economists cite the improvement in COVID-19 conditions as virus cases fell, as well as an improvement in foreign demand as reasons for the upswing.
Meanwhile, March’s retail sales hit their highest level on record of A$33.63bn after the previous record peak in November 2021, amid the continued easing of curbs. Director of Quarterly Economy Wide Statistics, Ben James, reported:
‘Consumer spending rose across both discretionary and non-discretionary industries. Following flooding in late February and early March along the east coast, impacted businesses regained lost turnover from forced closures as consumers restocked pantries.’
Looking ahead, analysts warn that China’s clouded outlook, given the country’s struggle with Covid-19, may cap further ‘Aussie’ gains. While Tuesday’s surprise 25bp rate hike by the Reserve Bank of Australia (RBA) pushed AUD higher, an external environment that remains negatively affected by the situation in China will potentially limit Australian Dollar upside.
GBP/AUD Exchange Rate Forecast: BoE Interest Rate Decision to Direct Movement?
Looking ahead, the Bank of England’s interest rate decision will likely be the main stimulus for the Pound Australian Dollar exchange rate tomorrow.
If the BoE hikes rates by 25bps as expected, Sterling is unlikely to enjoy any significant upside. If the central bank hikes by a larger amount, however – or a particularly hawkish tone is struck – GBP could enjoy upside.
In the run up to the event, Australia’s trade balance could influence trading. The country’s trade surplus looks to have increased in March, inspiring potential tailwinds for AUD.